prescription and OTC products can directly compete; many non-FDCA-based claims survive

Scilex Pharmaceuticals Inc. v. Sanofi-Aventis U.S. LLC, 2021
WL 3417590, — F.Supp.3d —-, 2021 WL 3417590, No. 21-cv-01280-JST (N.D. Cal.
Aug. 5, 2021)

Scilex sells an FDA-approved, prescription-strength topical
analgesic self-adhesive patch, ZTlido (lidocaine), which is allegedly often prescribed
off-label, including for general neuropathic pain (e.g., back and spinal pain).
It brought Lanham Act and California FAL/UCL claims over defendants’ allegedly
false advertising of their respective OTC lidocaine patches.

Article III standing: Defendants argued that Scilex’s
allegations of harm to its goodwill and lost profits were conclusory and that
the parties don’t compete for the same customers. But defendants were plausibly
direct competitors because they all “sell lidocaine patches that treat pain
through the skin.”

“A party may prove its injury (1) by using lost sales data,
that is ‘actual market experience and probable market behavior,’ or (2) ‘by
creating a chain of inferences showing how defendant’s false advertising could
harm plaintiff’s business.’ ” And direct competition plus materiality can create
such a chain of inferences, as here. For competition, plaintiff alleged that “ZTlido
is regularly prescribed for the off-label use of treating general neuropathic
pain – the same purpose for which OTC lidocaine patches are marketed and used,”
and the court noted that “the competition between prescription and OTC
lidocaine patches is reflected in [defendant] Hisamitsu’s advertising itself,
which draws direct comparisons between OTC and prescription patches.” In two blog
posts, Hisamitsu asserts that the “4% of lidocaine” found in its patches “is
close to the 5% lidocaine patch you would get with a prescription” and that the
Hisamitsu patches “followed the same principles used for the Rx (5% Lidocaine)
version …. The only change they made was to improve the price.” “[T]he extra
steps necessary to acquire a prescription patch – including getting the
prescription from a doctor – do not change the fact that Scilex and Defendants
are competing for the same consumers.”

Likewise, Scilex adequately alleged that its injury was fairly
traceable to its ads, despite defendants’ argument that there were other
explanations for Scilex’s failure to gain market share and that there are other prescription lidocaine patch producers. Footnote: Even
though ZTlido has only been approved by the FDA for relief of pain associated
with post-herpetic neuralgia, a complication of shingles, off-label use is
allegedly permissible, so its lost sales for off-label uses may be legitimately
compensable. Scilex isn’t required to show that the ads were the only reason
for reduced sales, so arguments about the crowded market weren’t helpful at
this stage. The fact that defendants’ ads preceded ZTlido’s entry into the
market doesn’t “foreclose the possibility” that the ads caused consumers to
choose defendants’ OTC products when they had a choice.

Redressability: Defendants argued that there was no “substantial
likelihood” that Scilex would gain the sales it claims to have lost if the challenged
ads were enjoined, because Scilex “would still be legally precluded from
advertising the ZTlido patch for any use other than the narrow indication
allowed by [the] FDA.” But that’s not relevant to the lost profits argument,
which is part of causation.

Statutory standing under the Lanham Act: You can guess how this
will go; I don’t think putting this as an Article III standing challenge was
helpful.

Must the plaintiff allege its own reliance to prevail
on its UCL/FAL claims? Scilex was seeking only injunctive relief under the
UCL/FAL. Although this judge had previously required such allegations, the
court was now convinced that recent cases to the contrary were more persuasive:
a non-consumer plaintiff has standing as long as the plaintiff alleges a
sufficient causal connection between the falsity and its losses. In re
Tobacco II
did say “that ‘[t]here are doubtless many types of unfair
business practices in which the concept of reliance … has no application,’ ” and so injury “as a result of” the defendant’s conduct can be proved without showing
that the plaintiff relied on the misrepresentation; Proposition 64’s aim
of requiring actual injury isn’t served by barring competitor plaintiffs as a
class.

Since FAL/UCL relief is equitable, plaintiffs also have to
show that they lack adequate remedies at law, but this can mean injunctive relief
when damages wouldn’t protect against future harm, so that’s ok too (at this
stage at least).

On the merits: Defendants argued that the claim of implied
FDA approval wasn’t cognizable because Scilex didn’t allege any affirmative
representation of FDA approval or sponsorship, and there’s no private cause of
action under the FDCA. This worked better: Mylan Laboratories, Inc. v. Matkari,
7 F.3d 1130 (4th Cir. 1993), held that implied misrepresentation-of-approval
claims must fail because the act of placing a drug on the market with standard
package inserts doesn’t falsely imply FDA approval. By contrast, JHP
Pharmaceuticals, LLC v. Hospira, Inc., 52 F. Supp. 3d 992 (C.D. Cal. 2014),
accepted allegations that defendants had put products on “industry ‘Price
Lists,’ and that ‘buyers believe that all prescribed drugs identified on the
Price Lists are … FDA-approved.’ ” That was more than merely putting a
product on the market. But Scilex didn’t allege similar actions, only that
defendants claimed that their products “desensitize aggravated nerves” and targeted
neck and back pain. It didn’t point “any reason that consumers would believe
these statements imply FDA approval,” especially since the statements “seem to
merely describe the effect of their products. … More is required to imply FDA
approval.”

Likewise, allegations about a “commercial containing [an]
individual in [a] white lab coat, referred to as ‘Dr. Bob’ in a doctor’s office
and labeled as ‘Bob Arnot, MD, Former Chief Medical Correspondent,’
recommending [Hisamitsu’s] product to apparent patient who asks what he should
use for back pain” weren’t sufficient. Scilex didn’t explain why such an ad
would lead consumers to believe that the product is FDA-approved or
prescription-only. Scilex can’t use the Lanham Act to make defendants say on
labels or in ads the specific uses the FDA has approved OTC lidocaine patches
be used for.

Hisamitsu also argued that Scilex didn’t sufficiently allege
how or why Hisamitsu’s statements – including “ ‘Maximum Strength,’ ‘Apply for
8 Hours,’ ‘Numbing Relief,’ ‘Blocks Pain Receptors,’ ‘Desensitizes Aggravated
Nerves,’ ‘for temporary relief of pain … back, neck, shoulders’ ” etc. – were
false or misleading. Scilex alleged
that these statements falsely “impl[y] that Defendants’ products completely block
pain receptors, eliminate responses to painful stimuli, and provide a numbing
sensation,” “impl[y] that Defendants’ products provide pain relief by
desensitizing nerves and/or pain receptors,” and “impl[y] that Defendants’
products contain ingredients that target nerves.” Since Scilex alleged that
lidocaine “is used to treat pain by depressing sensory receptors in the nerve
endings in the skin, which prevents pain signals from reaching the brain,” it
wasn’t clear why statements about the effects of lidocaine patches were
misleading. It wasn’t enough that the FDA’s Tentative Final Monography for
External Analgesic Drug Products for Over-the-Counter Human Use “declined to
grant approval for external analgesic products to be permitted to state on product
labels that these products ‘numb[ ]’ pain or ‘completely block[ ] pain
receptors.’ ” If defendants were violating the FDCA/FDA regulations, that was a
matter that couldn’t be resolved in a Lanham Act case.

Scilex successfully alleged that “MAXIMUM STRENGTH” “[f]alsely
states that [the] product[ ] contain[s] and deliver[s] to the area of pain the
maximum amount of lidocaine available in patch form” and “[m]isleadingly
implies that [the] product[ ] [is] superior, or at least equivalent, in
efficacy and results to prescription-strength lidocaine patch products.” Hisamitsu
argued that, in the context of the entire package, there was a disclaimer that
the tagline referred to products available without a prescription. The disclaimer
was in small font on a separate panel; that certainly wasn’t enough to grant a
motion to dismiss.

Scilex also successfully alleged that “apply for 8 hours’ …
[m]isleadingly implies that [Hisamitsu’s] product[ ] continuously adhere[s] to
the body and continuously relieve[s] pain for the specified amount of time.” Hiramitsu
argued that it didn’t make claims about how long the product adheres to the
skin or if the strength of the product remains effective for all eight hours,
and anyway Scilex didn’t allege materiality. Nope. Scilex plausibly alleged that
“apply for 8 hours” misleads consumers to believe that the product will adhere
to their skin and be effective for eight hours. It further alleged that
consumers “have experienced considerable problems with patch adhesion and patch
detachment prior to the 8 … hours for which [Hisamitsu] claim[s] [its]
patches adhere” and that if patches are “even partially detached, there may be
uncertainty about … the rate and extent of drug absorption.”

However, the court dismissed claims that a TV ad misleadingly
implied that the parties’ products were equivalent in efficacy and that the
parties’ products were interchangeable; there was no allegation that the TV ad made a
comparison to prescription patches. Hisamitsu argued that its blog posts (that the
product was “close to the 5% lidocaine patch you would get with a prescription”
and that the product “followed the same principles used for the Rx (5%
Lidocaine) version…. The only change they made was to improve the price so as
to make the product more accessible to the general public”) weren’t misleading
because they highlighted that there was less lidocaine and directed patients to
consult a doctor before switching. “The Court first rejects Hisamitsu’s
position that a consumer is not misled so long as they are directed to consult
with a physician. Such a rule would allow any manner of misleading
advertisement.” And the statements at issue clearly made
superiority/equivalence claims. It was plausible that consumers would be misled
to believe that Hisamitsu’s patch was interchangeable with or as effective as a
prescription lidocaine patch.

Defendants argued that the claims were barred by laches, but
the causes of action weren’t available before ZTlido entered the market in February
2018. Scilex sued less than three years later, within any applicable (borrowable)
statute of limitations, so there was a strong presumption against laches.

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